Taxpayers planning for the Assessment Year (AY) 2025-26 (pertaining to income earned in FY 2024-25) need to be more cautious about the deductions claimed in their Income Tax Returns (ITR). The Income Tax Department is cracking down on fraudulent ineligible deductions with a more aggressive approach. These attempts at tax fraud are more easily exposed now due to the use of data analytics and digital footprints, so disallowed expenses won’t be tolerated. Claims based on deductions will need to be backed by evidence, and also for non-genuine reimbursement documentation. Payments that are falsely claimed or overclaimed, like donations or medical bill reimbursements, need indisputable proofs to back the claims. Deductions claimed without proper documentation can attract severe consequences such as disallowing the claimed deduction, penalties, applying interest on the assessed tax, or other punitive measures as being audited or scrutinized. Correct documentation and proof go a long way in keeping the claim free from fraudulent discrepancies. The department seeks to achieve accuracy and fairness in the tax system so as to fix gaps such as revenue leakage caused by fake claims.Every taxpayer must keep precise records of their spending and investing for the entire year. They should only claim deductions that are legitimately allowed and backed by proper documentation. The accurate filing of tax returns is the simplest way to avoid issues and penalties, and in this case, honesty is the best policy.
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